If you have a significant tax debt and are looking for the fastest, most affordable way toward a resolution, then you should consider an Offer in Compromise, which is a major component of the IRS’s “Fresh Start” initiative. But first, you have to know if the effort is worth the outcome—which means you have to understand how much you could potentially save through this program.
We wrote this blog to explain what an Offer in Compromise is, how to use an online Offer in Compromise calculator, and how a licensed tax professional can help.
What Is an Offer in Compromise?
The Offer in Compromise (OIC) program was created by the IRS to help taxpayers who cannot afford to pay significant tax liabilities settle their debt for a portion of the full amount and move on with their lives. If you or someone you know has more than $10,000 in unpaid taxes, the IRS may be willing to negotiate a reasonable figure that works for both sides.
For the IRS, the figure is the largest amount they can feasibly expect to receive within a reasonable period of time. For you, this figure could be in the tens of thousands.
As long as you’re not in the middle of an open bankruptcy proceeding and your tax filings are up to date, you would likely pre-qualify for the program. However, if you’ve already entered into an Installment Agreement with the IRS, you must wait until that agreement has been satisfied before attempting to qualify for an OIC.
The Pros and Cons of an Offer in Compromise Calculator
You can check to see if you qualify for an Offer in Compromise through the IRS website here. This tool will walk you through your eligibility status all the way through to a potential proposal. In between, you’ll enter rough estimates of the value of your assets, income, and expenses to arrive at a hypothetical offer.
This is a quick, simple, and efficient way to get a rough idea of how much you could trim off your tax debt through the OIC program. However, it’s not very accurate and doesn’t take into account how you can negotiate the best possible settlement.
With any OIC calculator, the offer amount will be based almost purely on an algorithm, which takes into account:
- Assets vs. Balance
- Income vs. Expenses
- Elapsing Expenses
From there, one of two algorithms are used:
- If you plan to pay off the debt in a lump sum (or 5 or fewer monthly payments): (Monthly Available Income x 12) + the amount of available assets based on Form 433-A(OIC).
- If you plan to pay off the debt with payment plan of 6 to 24 months: (Monthly Available Income x 24) + the amount of available assets based on Form 433-A(OIC).
(Monthly available income is your average monthly income minus allowable monthly expenses, such as living expenses, child support/alimony, health and life insurance premiums, etc.)
The result is the original minimum amount the IRS says they will be willing to accept for an Offer in Compromise, depending on the payment term selected.
The IRS also requires a $205 application fee (increased from the previous figure of $186 in 2020) and the first month’s payment. Generally speaking, the sooner you’re able to pay the amount in full, the better the offer will be.
Thankfully, the conversation doesn’t have to stop there.
Related Content: Calculating Your Assets for an Offer in Compromise
Why Choose to Work With a Licensed Tax Professional?
The Offer in Compromise calculator will help you understand your eligibility and what’s possible, but it isn’t the final say — not by a long shot. By working with skilled and experienced tax professionals, you can rest assured of complete transparency and protection throughout the process.
- Streamline the application process: Qualified tax professionals understand which forms need to be completed and how to fill them out accurately and submit them on time. For example, most taxpayers who go it alone aren’t aware of Form 656-A, which you can submit to apply for waiving processing and down payment fees.
- Understanding the criteria: An experienced tax pro will help you understand the considerations for Offer in Compromise acceptance, which come down to one of three criteria:
- Doubt as to Liability
- Doubt as to Collectability
- Effective Tax Administration
- IRS negotiation: The IRS examines the records of OIC candidates very carefully to ensure your ability to hold up your end of the bargain. Even the most thorough taxpayers need help tracking and reviewing relevant financial documents, not to mention interfacing and negotiating directly with the revenue officer on your behalf.
- Filing an appeal: If your OIC application is denied, a skilled tax professional will file a Form 13711 on your behalf within 30 days of your rejection notice and then handle all aspects of the appeal itself—disputing each issue that’s been raised.
Contact S.H. Block Tax Services to Negotiate a Fair Offer in Compromise
Successfully negotiating a fair Offer in Compromise can mean the difference between economic freedom and a lifetime of financial hardship. At S.H. Block Tax Services, we have a wealth of experience with the IRS Offer in Compromise program and have saved our clients millions of dollars in tax liabilities over the years.
To learn more about our negotiating process and our past success, please call (410) 872-8376 or complete this brief form today to schedule your free consultation with one of our skilled tax attorneys.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.